If you are self-employed, it’s likely that you will need to make estimated tax payments throughout the year. Unlike traditional employees who have taxes withheld from their paychecks, self-employed individuals are responsible for paying their taxes directly to the IRS. In this article, we’ll go over the basics of estimated tax payments and provide you with a step-by-step guide on how to make them.
What Are Estimated Tax Payments?
Estimated tax payments are quarterly payments made to the IRS to cover your tax liability for the year. These payments are required if you expect to owe more than $1,000 in taxes for the year after subtracting your withholding and refundable credits. This includes income taxes, self-employment taxes, and any other taxes you may owe.
When Are Estimated Tax Payments Due?
Estimated tax payments are due four times a year: April 15th, June 15th, September 15th, and January 15th of the following year. It’s important to note that the dates may change slightly if they fall on a weekend or holiday.
How to Calculate Estimated Tax Payments
To calculate your estimated tax payments, you’ll need to estimate your income, deductions, and credits for the year. You can use last year’s tax return as a starting point and make adjustments as necessary. The IRS provides a worksheet in Form 1040-ES to help you calculate your estimated tax payments.
Once you have calculated your estimated tax liability, you’ll need to divide it by four to determine the amount of each payment. It’s important to note that the payments do not have to be equal. If your income fluctuates throughout the year, you can adjust your payments accordingly.
How to Make Estimated Tax Payments
There are several ways to make estimated tax payments:
- Electronic Payment: You can make your payment online using the IRS’s Electronic Federal Tax Payment System (EFTPS). This is a free service that allows you to schedule payments in advance or make same-day payments.
- Credit or Debit Card: You can make your payment using a credit or debit card through a payment processor. However, keep in mind that there may be processing fees.
- Check or Money Order: You can mail a check or money order along with Form 1040-ES to the address provided in the form.
- Cash: You can pay your taxes with cash at a participating retail store through the IRS’s PayNearMe service. Keep in mind that there is a fee for this service.
It’s important to keep track of your payments throughout the year and to make sure that you meet the deadlines. Failure to make timely estimated tax payments can result in penalties and interest.
As a self-employed individual, making estimated tax payments is an important part of managing your finances. By following the steps outlined in this article, you can ensure that you are meeting your tax obligations and avoiding penalties. If you have any questions or need further assistance, consult a tax professional or contact the IRS directly.